The United States is experiencing an energy revolution that is having a tremendous impact on business. Moving forward, this is projected to boost corporate competitiveness, manufacturing output, employment, and exports, as well as household income. And this new “gold rush” is catapulting new American energy to the top of global charts, while continuing to reduce American dependence on foreign energy sources.

Understanding American Energy

In 2012, natural gas represented 31 percent of total U.S. domestic output. This was followed by coal at 26 percent, oil at 21 percent, renewables at 11 percent, and nuclear at 10 percent. In turn, U.S. production supplied approximately 83 percent of total U.S. energy demand. (1) Net energy imports (imports minus exports), which peaked in 2005, continue to decline. (2)

Last year, the U.S. natural gas production reached 24.1 trillion cubic feet in output. Consequently, the United States ranked as the world leader in natural gas production, followed by Russia at nearly 23.7 trillion cubic feet. (3) But that’s not all.

Domestic natural gas output is projected to rise by 56 percent through 2040, with production increasing to 37.6 trillion cubic feet annually. (4) As a result, natural gas, as a percentage of total U.S. energy production, will rise to 38 percent by 2040, followed by coal (22 percent), oil (20 percent), renewables (12 percent), and nuclear (10 percent). (5)

Why is natural gas projected to rise so much?

Continued advances in horizontal drilling and hydraulic fracturing have enabled American companies to exploit untouched domestic unconventional energy resources, such as shale gas, shale oil and tight oil, once considered too difficult to extract. In turn, due to improved recovery rates, assessments of these obtainable reserves have skyrocketed, even in already tapped fields. For example, it’s now estimated that a Persian Gulf may lie below Montana and North Dakota.

Horizontal drilling allows vertical drilling systems to turn 90 degrees to steer in various directions well below the Earth’s surface to reach areas not easily accessible. Hydraulic fracturing, also known as hydrofracking or fracking, is a process that injects mostly water, some sand and chemical additives into the ground to create fissures in shale or other rock. consequently, shale gas is released and captured, while shale oil and tight oil seep back through the cracks and are extracted.

In terms of world output, how does this stack up?

The United States is projected to become a net exporter of natural gas by 2018. (6) In addition, an increase in domestic crude oil production — at an average of 0.8 million barrels per day of through 2016 — is having a significant impact. (7) As a result, the United States likely will surpass Russia as the world’s top oil producer by 2015. (8)

Overall, total American energy production, measured in British thermal units known as BTUs, is estimated to increase by nearly 30 percent from last year through 2040. As a result, American energy imports are estimated to decline from 16 percent in 2012 to approximately 4 percent by 2040. (9) In addition to increases in production, improvements in efficiency and a decrease of 8 percent in American energy use per capita from 2012 through 2040 also play a significant role. (10)

The Impact of Abundant, Lower Natural Gas Prices

Stated by Boston Consulting, a business management firm, U.S. production of shale gas “has helped knock down the U.S. wholesale price of natural gas by 51 percent since 2005.” What is the impact? “Cheap U.S. energy is a game changer. It is bolstering the U.S. competitive position in energy-heavy industries,” says a BlackRock Investment Institute study, a division of one of the world’s largest asset managers, “in a December 2013 report.

A secure supply of low-cost natural gas will benefit manufacturers, especially in energy-intensive industries.

According to IHS, a leading global source of information and insight, a secure supply of low-cost natural gas will benefit manufacturers, especially in energy-intensive industries, including iron and steel products, machinery, basic organic chemicals, resins and synthetic materials manufacturing, and agricultural chemicals manufacturing.

What is the result? According to IHS, by 2025, the American increase in natural gas and unconventional oil will:

• Contribute $533 billion to gross domestic product,
• Support 3.9 million jobs,
• Increase government revenues by $1.6 trillion, and
• Boost disposable household income by more than $3,500.

There’s more. By 2015, lower natural gas prices and higher activity will increase U.S. industrial production by 2.8 percent by 2015 and 3.9 percent by 2025, says IHS.

Boston Consulting says European and Japanese natural gas costs are 2.6 to 3.8 percent higher than in the United States. This, combined with relatively higher European and Japanese electricity and labor costs, puts average manufacturing costs in the UK, Japan, Germany, France and Italy between 8 and 18 percent higher than in the United States by 2015.

Labor costs in developing nations, especially China, also are rising as compared to the United States. Plus, as the wage gap shrinks between these countries and lower-cost American southern states, current trends in backshoring — the reverse of offshoring or the shifting of U.S. manufacturing activities to China and other developing countries — are likely to strengthen. And now, with the U.S. energy explosion underway, the overall cost differences are shrinking even more. This almost certainly will accelerate backshoring. (see Energy Revolution Could Supercharge U.S. Manufacturing, Hurt China.)

With much of American manufacturing returning to American shores, and the United States becoming a more attractive and competitive manufacturing location, U.S. exports are projected to rise as well. In fact, Boston Consulting estimates that the United States “will capture $70 billion to $115 billion in annual exports from other nations by the end of the decade.” The report states that about two-thirds of these export gains likely will come from the production shift to the U.S. from leading European nations and Japan. And by 2020, Boston Consulting predicts higher U.S. exports, combined with production that will likely be backshored from China, may generate 2.5 million to 5 million American factory and service jobs associated with increased manufacturing.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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